Enterprise Bill

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Mr. Waterson: I am not sure that I accept everything that the Minister has said, but his explanation has been full. Given that there are issues to develop in the stand part debate and on the following clause, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr. Waterson: As I have suggested, the scrapping of Crown preference is a major step that we welcome. In fairness, it has been welcomed widely by many organisations, such as the Institute of Directors, the Federation of Small Businesses and the R3 group, which is the prime clearing house of the various insolvency practitioners.

Crown preference is one of the relatively few issues in the Bill that impinges on our constituency mailbags and surgeries to some extent. There has always been a feeling that the Crown preference was unfair on the part of small business men and sole traders—certainly, those who come and see me from time to time—and that, were it not for Crown preference, in many situations money would be available for creditors that is not available at the moment.

One or two of my colleagues, including my hon. Friend the Member for Cities of London and Westminster, have more than hinted that when dealing with them on behalf of constituents who have got themselves into difficulties, the Inland Revenue, and especially Customs and Excise, can be extraordinarily inflexible. That seems even more so when companies get themselves into insolvencies.

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The Opposition broadly welcome the scrapping of Crown preference. There is a figure for the cost to the Treasury—I cannot put my hands on it at the moment, but it is at least several hundred million pounds—but the way to look at that is as extra funds available for creditors other than from the Government and the taxpayer. That is to be welcomed.

There are some more sceptical voices, however. The Institute of Chartered Accountants has pointed out that an unintentional effect of the removal of Crown preference is that the Inland Revenue and others could be motivated to enforce methods of recovering their debts even earlier, as my hon. Friend the Member for Cities of London and Westminster suggested. That could precipitate more insolvencies, not fewer.

A similar point has been made by the British Bankers Association, which takes the view that the sum of funds released will have little or no material impact on the recovery rates of other creditors. It stated in its response to the White Paper:

    ''The most important thing the Crown could do to support the further development of enterprise, would be to behave in a 'commercial' way when considering CVAs or other instances of distress. Businesses could be saved if the Crown were prepared to forego part of its 100p in the pound.''

I want to focus on the role of the Crown, not in insolvency, but in the build-up to it, when a business is clearly in difficulty with cash flow or something similar and needs the forbearance and understanding of its creditors, including such bodies as the Inland Revenue and Customs and Excise. My experience, having attempted a number of times to help constituents who were under great pressure, is that it is barely worth spending the money on a stamp to write to Customs and Excise. The response is invariably totally inflexible; a pound of flesh will always be taken under present circumstances. The Inland Revenue tends to be more flexible—or perhaps less efficient—in following up monies owed to it.

During the crucial period when a business is clearly in difficulties, but is not necessarily doomed to total failure and liquidation and needs understanding and forbearance, the provision will have no effect whatever. As I understand it, all that we shall achieve under clauses 242 and 243 will be to say that the Crown will not have its pound of flesh once an insolvency has taken place. The benefits of that, although to be welcomed—and I have welcomed them—might be outweighed by the fact that more businesses will be pushed into liquidation, because the bodies that we have mentioned will be much more efficient and much keener to ensure that they are not owed money in the liquidation of their companies. They will be more proactive in pursuing those amounts when they fall due and more deaf to entreaties that they should hold off and wait to see what happens. I should like to think that that is not the case.

I am sure that the Minister and his Department will have had discussions with the Treasury, the Inland Revenue and Customs and Excise about those matters. I hope that they have at least sought—possibly even obtained—assurances that there will not be a change of practice so that money that would otherwise be lost

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under the provisions of the Bill can be recouped. Otherwise, many of us, as constituency Members, might find it even more difficult when constituent companies, especially small traders and individuals trading on their own account, come to us for help and try, through us, to extract some sympathy and mercy from the Crown bodies. I hope that my concern is unjustified and that the Minister will reassure me and, through me, many small businesses.

Mr. Djanogly: As has been said by many, the concept of getting rid of Crown preference is welcome. That will make us more like other countries where, I believe, it is a rarity. However, in some ways, too much is being made of how the provisions will dramatically benefit unsecured creditors in particular. It is important to appreciate that the amount of the preference debt is not automatically distributed. In reality, only the assets that are caught by the floating charge will go into the preference pot, ready for distribution. I would be grateful for the Minister's clarification as to whether the Crown will remain as an unsecured creditor as well.

What will follow is, to my mind, certain, having seen the banks in operation. We shall see the banks trying to ensure that as many assets as possible are subjected to fixed charges rather than to the floating charge—they will try to make the pot as small as possible. I would be pleased to know whether the Minister has considered that possibility and what the Government's response would be. One wonders why the Government did not just accept that they would not be a preferential creditor, write off the money and allow it to be distributed to unsecured creditors.

Mr. Alexander: I recognise the importance of the scrutinising function of the Committee, but given the wide welcome that the provisions have received, perhaps we are in danger in our debate of not catching the genuine reaction to the proposals that is felt the length and breadth of the country. The removal of preferential status in insolvency proceedings is widely welcomed, not least by the kind of small business people for whom the hon. Member for Eastbourne spoke. The Crown will no longer have preferential rights in respect of debts due to the Inland Revenue for PAYE and national insurance contributions or to Customs and Excise for VAT and certain excise taxes and duties. I should clarify, for the convenience of the hon. Member for Huntingdon, that the Crown will be an unsecured creditor, but the clause addresses the issue of preferential status.

The money that the Crown receives as a preferential creditor will be available to ensure higher returns to other creditors. The Crown will then rank alongside all other unsecured creditors. The idea of the Crown giving up its preferential status was welcomed in the publication ''A Review of Company Rescue and Business Reconstruction Mechanisms''. Responses to the consultation were largely of the view that the Government are in a far better position to absorb the effect of bad debts than the average trade creditor, and recognised that there was little merit in the contention

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that preferential status was an appropriate compensation for the Crown's position as an involuntary creditor.

In response to the points raised in relation to Customs and Excise and the conduct and actions of the Inland Revenue, I hope that I can give the reassurance that the hon. Member for Eastbourne seeks. The revenue departments have assured us that in pursuing outstanding debts following the abolition of preference they will continue to offer help and support to vulnerable businesses facing genuine difficulties. That includes support for business rescues via voluntary arrangements and in administrations. The revenue departments are committed to assisting viable businesses trade through financial difficulties wherever possible. They have always taken an active approach to their debt-management effort, even where they knew a debt in a potential insolvency was protected by preferential status. There is no reason why abolition of preference will change their approach.

Mr. Waterson: That is precisely what we are worried about—that the provision will not change their approach. I do not think that my experience is unique among members of the Committee; I would be interested to hear whether other Members have had the same experience. My experience is that Customs and Excise in particular does not take a sympathetic or helpful attitude, so for it to say that it will continue to take that attitude may be good salesmanship, but does not cut any ice with me or with some of my constituents.

I find it chilling that the best that Customs and Excise can do is to say that it will carry on as it has been doing, because that is precisely my complaint. We need a much more proactive statement from the Minister on behalf of the bodies in question that they will be more sympathetic and helpful rather than the opposite. He said that they would be carrying on as before, which is the last thing that anyone wants.

Mr. Alexander: I take the hon. Gentleman's point, but it is hardly a cheap political point to suggest that some of the actions of Customs and Excise and the Inland Revenue under previous Governments have not always recognised the importance of sustaining viable businesses. There has been change, but there is further work to do. However, this is a signal of the Government's general commitment to advancing an enterprise agenda and working closely with companies through the appropriate procedures. There is probably further work to be undertaken, but progress is being made.

Mr. Field: I am very heartened by the Minister's enthusiasm and confidence. Headline figures that were provided by the Under-Secretary refer to the value to the Government of the Crown preference as between £70 million and £100 million a year. Conservative Members are concerned that the pool of money will be far smaller. I would be interested to see whether the sum lost to the Crown will be anything like as much as £100 million a year. How much does the Minister envisage the Government losing in Crown preference per annum during the next three to five years?

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Mr. Alexander: The Department estimates that the loss will be around £70 million a year—

It being Five o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Order of the Committee [16 April].

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Adjourned till Tuesday 14 May at half-past Ten o'clock.

The following Members attended the Committee:
Beard, Mr. Nigel (Chairman)
Alexander, Mr.
Barnes, Mr.
Borrow, Mr.
Brown, Mr. Russell
Burnham, Andy
Campbell, Mrs. Anne
Carmichael, Mr.
Djanogly, Mr.
Field, Mr. Mark
Hendry, Mr.
Irranca-Davies, Huw
Lansley, Mr.
McWalter, Mr.
Pearson, Mr.
Pugh, Dr.
Purchase, Mr.
Thomas, Mr. Gareth R.
Waterson, Mr.

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